It's China. As we see today, the Fed announcement of a second (and bigger) quantitative easing is perking up commodity markets. Economist had expected it, except that may not be what is really happening.
So which kind of rise are we observing? James Hamilton credits QE2 with lifting commodity prices and posts charts tracking price rises across a range of commodities:If you have entertained any doubts about the leading global economy right now, this might shift your gaze from Washington much further east. Despite our overwhelming lead in actual GDP size, it is the growth rate differential that will make China the mover and shaker.
But what's interesting about his charts is that the steady upward trend common to all of them starts around the beginning of July—not the beginning of September, as we'd expect if QE2 were the causal factor. What happened around the first of July? Well, China's government, which had grown concerned about the too-rapid slowdown in its economy, paused or reversed some of the steps it had taken to dampen activity. This included restrictions on bank lending and a temporary halt to appreciation of the yuan. And what followed, we now know, was a remarkable resumption in Chinese industrial activity. To me, the steady climb in commodity prices over the past four months seems indicative of the surprisingly strong performance of emerging economies.
That doesn't mean that Fed activity has had or will have no effect. I'd be surprised if commodity prices didn't go on rising. But much of that rise will be an unavoidable knock-on effect from the collision of soaring global demand for commodities with lagging global supply. [More]
Add in what will surely be a push for austerity measures which could well stop our feeble recovery in its tracks, and we'll be checking the overnights more assiduously than the noon prices.